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Third Circuit Affirms Uber Win in Attempted Monopolization Suit

On March 27, 2018, the Third Circuit affirmed dismissal of an antitrust suit against Uber Technologies, Inc. (“Uber”) by the Philadelphia Taxi Association and its members, individual taxicab companies (together, “Plaintiffs”).  In essence, the Third Circuit held that, based on Plaintiffs’ allegations, federal antitrust laws do not reach Uber’s alleged violation of state and local taxicab regulations and that its entrance into the Philadelphia taxicab market created more competition, not less.

Plaintiffs filed suit in March 2016 and amended their complaint in June 2016, alleging attempted monopolization in violation of federal antitrust laws and unfair competition and tortious interference in violation of state law.  The Philadelphia Parking Authority (“PPA”) regulates vehicle-for-hire services in the city, and PPA regulations require (i) that taxicabs have a medallion and a certificate of public convenience, (ii) that taxi companies pay their drivers the prevailing minimum wage and require drivers to have the appropriate licenses, and (iii) that taxi companies supervise and insure their vehicles and drivers.  According to their complaint, Plaintiffs comply with PPA regulations, but Uber does not.  It has allegedly operated illegally from its October 2014 entrance into the market until October 2016 (when the state legislature modified the regulatory framework to approve of Uber’s operation).  Plaintiffs alleged that Uber actively recruits drivers from Plaintiffs, and that, since Uber’s entrance into the market, approximately 1200 drivers have left Plaintiffs for Uber and the average value of Plaintiffs’ medallions has dropped from $530,000 to $80,000.

On November 3, 2016, District Judge Juan R. Sánchez dismissed the amended complaint, finding that Plaintiffs had not alleged an antitrust injury:  “Plaintiffs have extensively pleaded detriment to their own welfare, but [they have] failed to alert this Court of any negative impact Uber’s presence in the marketplace has had on the price, quality, or quantity of taxicab or vehicle-for-hire services—essential indications of antitrust injury.”  The Third Circuit affirmed on this ground, explaining that Plaintiffs alleged no harm to consumer prices or availability of taxicabs, and instead sought compensation “for their loss of profits due to increased competition from Uber.”

The Third Circuit held that, in addition to failing to allege antitrust injury, Plaintiffs also failed to allege that Uber engaged in anticompetitive conduct amounting to attempted monopolization.  The Third Circuit explained that, rather than being anticompetitive, Uber’s entrance into the market had “bolstered competition by offering customers lower prices, more available taxicabs, and a high-tech alternative to the customary method of hailing taxicabs and paying for rides.”  That Uber achieved its market share by allegedly violating PPA regulations to lower its costs is “of no concern to the antitrust laws,” absent allegations of anticompetitive effects.  And Uber’s efforts to recruit drivers away from Plaintiffs were not anticompetitive because the complaint apparently conceded that Uber’s success in recruiting drivers has been attributable to its “cost efficiency and competitive advantage.”  In holding that Plaintiffs had failed to plausibly allege a dangerous probability that Uber would achieve monopoly power, the Third Circuit noted Uber’s easy entry into the taxicab market, which presumably another competitor could achieve as well.

In October 2016, the Seventh Circuit affirmed dismissal of a similar suit brought by taxicab drivers against the City of Chicago.  That suit alleged Chicago’s decision to regulate Uber and other app-based services differently from traditional taxicab drivers harmed the taxicab drivers’ property rights in violation of the federal Constitution.  Although not explicitly an antitrust case, the Seventh Circuit explained that the taxicab drivers’ property rights did not include the right to exclude competition, and that they could not require the city to subject Uber to the same regulations as taxicab drivers.  The Third Circuit thus joined the Seventh Circuit in holding that the harms alleged by taxicab drivers were the result of more competition in the market since Uber’s entrance, not less.

The case is Philadelphia Taxi Association, Inc. et al. v. Uber Technologies, Inc., No. 17-1781 (3d Cir. Mar. 27, 2018).